Flash Boys Programmer Gets Some Evidence Thrown Out - Bloomberg

http://www.bloomberg.com/news/print/2014-06-20/ex-goldman-sachs-pr...

By Chris Dolmetsch - Jun 21, 2014

The former Goldman Sachs Group Inc. (GS) programmer twice charged with stealing the companys
high-speed trading code on his last day of work scored a pre-trial victory as a New York judge ruled his
arrest was illegal and threw out some of the evidence against him.
Sergey Aleynikov, 44, a naturalized U.S. citizen born in Russia, whose case was the inspiration for Michael
Lewiss best-seller Flash Boys, is fighting charges in state court after his federal conviction was
overturned.
Physical evidence seized after Aleynikovs arrest, including computer hardware containing the allegedly
stolen code, cant be used at his trial, New York State Supreme Court Justice Ronald Zweibel in Manhattan
ruled yesterday. He also barred prosecutors from using Aleynikovs statements to FBI agents after his July
3, 2009, arrest at Newark Liberty International Airport in New Jersey.
I think the D.A. has to confront the possibility that this case has fallen to pieces and its going to be very
difficult to bring it based on upon whatever evidence remains, Anthony Sabino, a law professor at the
Peter J. Tobin College of Business at St. Johns University in Queens, New York, said in a phone interview.
Prosecutors will still be able to use one Aleynikov statement in which he said he downloaded files from
Goldman Sachs. While that violated Goldman Sachss security policy, the files he was accused of taking
contained open-source code that he wrote while at the company and werent proprietary, Aleynikovs
lawyers have said.

Aleynikovs arrest and a subsequent search of his home were presumptively unreasonable, Zweibel said
in his ruling. The judge said the Federal Bureau of Investigation didnt get warrants and that Special Agent
Michael McSwain made a mistake of law in charging Aleynikov with two federal crimes.
Zweibel denied Aleynikovs request to exclude subsequent statements made at FBI headquarters in New
York, saying they were made voluntarily and that he was advised of his rights.
While defendant was illegally arrested because of a mistake of law, agent McSwain did not deliberately
act in bad faith, Zweibel said in his ruling. This is not a case where Agent McSwain resorted to mental,

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physical or emotional coercion to obtain defendants confession.

Kevin Marino, Aleynikovs lawyer, said in a statement that the ruling guts the case against his client and is
another important step on Sergey Aleynikovs long journey to complete vindication.

The decision represents a damning indictment of those assistant U.S. attorneys, assistant district
attorneys and FBI agents who have now twice pursued an unlawful prosecution of an innocent man at the
behest of Wall Street giant Goldman Sachs -- and indeed, of Goldman itself, which not only provoked but
has been an active co-conspirator in the governments case against Mr. Aleynikov, Marino said.
Benjamin Petok, a spokesman for the Manhattan District Attorneys Office, declined to comment on the
ruling. David Wells, a spokesman for New York-based Goldman Sachs, declined to comment on the ruling
or Marinos statement.
Federal agents arrested Aleynikov shortly after he stepped off a plane at the Newark airport after
returning from a trip to Chicago, where he had taken a job with Teza Technologies LLC, the firm founded
by former Citadel Investment Group LLC high-frequency trading chief Mikhail Misha Malyshev. Teza
suspended Aleynikov after his arrest and later fired him.
Aleynikov would have made $1.2 million a year at Teza, more than double his annual pay at Goldman
Sachs, according to the ruling.

Aleynikov was found guilty of stealing code by a federal jury in Manhattan in December 2010 and was
sentenced in March 2011 to eight years and one month in prison, serving about a year before a U.S.
appeals court reversed his conviction and ordered him freed in February 2012. He was charged by
Manhattan District Attorney Cyrus Vances office six months later. He has pleaded not guilty.
Zweibel in April denied a bid by Aleynikov to have the state charges thrown out on double-jeopardy
grounds, saying the elements of the counts he faces are different from those he faced in federal court.
Aleynikovs story was recounted by Lewis in Vanity Fair and later became the foundation for his book
Flash Boys, which argues that high-speed traders, exchanges and broker-dealers have rigged the stock
market. The book has brought increased scrutiny of the practice in the U.S.
Zweibel said McSwain made a mistake of law when he determined he had probable cause to charge him
with a violation of the National Stolen Property Act because source code is intangible and the statute only
refers to tangible property.

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Flash Boys Programmer Gets Some Evidence Thrown Out - Bloomberg

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The judge also said McSwain mistakenly concluded that Aleynikov had violated the Economic Espionage
Act, which applies to products made specifically for use in interstate or foreign commerce such as
manufactured goods. Goldman Sachs had no intention of selling its high-frequency trading system or
licensing it to anyone, according to the ruling.
The law was expanded after Aleynikovs release from federal prison to cover products or services not
intended for use in commerce, including computer code.
Zweibel said that while Aleynikov agreed to a search of his home, his consent was obtained after he was
arrested at the airport and handcuffed and before he was advised of his rights and was therefore
unknowing and involuntary.

The judge said that while the search of Aleynikovs home was reasonable because his wife had agreed to it,
the property seized should have been returned after his acquittal. The items seized included five desktop
computers, a laptop and an external hard drive. A thumb drive and a laptop computer taken from him at
the time of his arrest also should have been returned, Zweibel said.
There was no independent basis for the governments retention of defendants property after defendant
was acquitted in his federal case, the judge said. The property should have been returned to defendant.
In a signed statement that can still be used as evidence, Aleynikov told McSwain at FBI headquarters that
he created a tarball that copied several thousand files, sent them to a server in Germany and then
downloaded them to his home computer. Aleynikov told McSwain he transferred about five megabytes on
his last day of work, and sent data from his work desktop to his home computer about five times,
according to Zweibels ruling.

Aleynikov said the data was on his laptop taken at the airport and also may have been on his wifes home
computer and an external hard drive, according to the ruling. He said he was trying to collect 10
open-source files from Goldman Sachs.
He told the agent that the files werent blocked by the company and thats why he chose to send them to
the German server, according to the ruling. He said that he wanted to review the files much like a person
in college would want to review their papers, although he knew that his actions violated Goldman Sachs
security policy, according to the opinion.
The case is New York v. Aleynikov, 04447-2012, New York State Supreme Court (Manhattan).
To contact the reporter on this story: Chris Dolmetsch in State Supreme Court in Manhattan at

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cdolmetsch@bloomberg.net
To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Andrew Dunn
2014 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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